Inflation tipped to halt OCR hike
Weaker than expected inflation at the end of 2017 will see the Reserve Bank delay interest rate hikes for at least six months, ANZ is predicting.
Statistics New Zealand said yesterday that the consumer price index (CPI) lifted by 0.1 per cent in the final three months of 2017, below the 0.4 per cent rise economists were expecting.
A sharp rise in petrol prices at the end of 2017 boosted the transport component of inflation, while construction costs also rose. However, food prices dropped, as did the price of a range of retail goods, including new cars, clothing and appliances, Statistics NZ said.
The increase was lower than the rise at the end of 2016, meaning annual inflation dropped to 1.6 per cent, the lowest annual rate in 12 months.
At the end of September, inflation was 1.9 per cent.
Economists had expected inflation to stay at 1.9 per cent, or possibly climb.
The news sent the New Zealand dollar tumbling by almost US1 cent and prompted economists to warn the news could delay higher interest rates.
‘‘Today’s data, along with our belief that the economy is set to go through somewhat of a near-term growth wobble, see us pushing out our expectation for the first OCR [official cash rate] hike to mid-2019, from November 2018,’’ ANZ senior economist Phil Borkin said.
Inflation figures are closely monitored by the Reserve Bank, which is tasked with controlling inflation when setting the OCR, which influences mortgage rates and the returns on savings.
The official target is to keep inflation as close as possible to 2 per cent; however, for years inflation has tended to be below this level.
ASB senior economist Jane Turner said the news reinforced ASB’S view that interest rates would not be raised until at least next year.
‘‘This release suggests that inflation has yet to stage a convincing comeback in New Zealand, outside of the housing sector,’’ she said.
ASB was already predicting that interest rates would not be hiked until 2019.
Kiwibank senior economist Jeremy Couchman said the news would likely prompt the Reserve Bank to ‘‘sit up and take note’’, with headline and underlying measures of inflation dipping.
However, Couchman cautioned that there were other factors that could boost inflation in the future and that had not yet had an impact.
‘‘For instance, the Government’s increase in the minimum wage from April this year is expected to influence price increases. In last week’s NZIER business opinion survey there was a jump in the share of firms looking to pass on cost increases in the coming quarters.’’
Nevertheless, Couchman said further signs of softening in inflation measures ‘‘could lead us to push out the expected timing of an OCR hike into 2019’’. Currently Kiwibank is expecting the Reserve Bank to lift the OCR in November.
Statistics NZ said that after two quarters of falls, petrol prices rose sharply at the end of 2017, with the average price of 91 octane petrol rising by 11 cents to $1.94 in the final three months of the year.
The petrol price changes were felt by some regions more than others, a fact already highlighted by both the media and a government inquiry.
Statistics NZ said retailers were moving away from discounting and were instead opting to hold some prices consistently lower over the year.
On an annual basis, petrol prices were up throughout 2017, as was the price of cigarettes and tobacco, which climbed by almost 10 per cent due to higher taxes.
Meanwhile the price of cars dropped 2 per cent, led by a fall in the price of new vehicles, which fell 6.7 per cent.
Telecommunications service prices were also lower, which Statistics NZ attributed to better value data plans.